Sign up to receive Providence Business News' newsletters and breaking news alerts.

economy

U.S. ISM services index falls to lowest since January 2010

Posted:
Tuesday, December 6, 2011 9:49 am

By Bob Willis and Shobhana ChandraBloomberg News

WASHINGTON - Service industries in the U.S. expanded in November at the slowest pace since January 2010 as employment cooled, a sign improvement in the biggest part of the economy will be uneven.

The Institute for Supply Management’s non-manufacturing index unexpectedly fell to 52 last month from 52.9 in October, the Tempe, Ariz. based-group said Monday. The median forecast of economists surveyed by Bloomberg News called for an increase to 53.9. Fifty is the dividing line between expansion and contraction.

Falling home prices, slow wage growth and limited job gains may make it difficult for households to sustain the pace of spending after the holiday shopping season. For companies, Europe’s debt crisis and a lack of clarity on the U.S. budget deficit and taxes remain obstacles to expansion.

“The economy continues to muddle along at a moderate pace,” said Richard DeKaser, deputy chief economist at Parthenon Group Inc. in Boston, who projected a reading of 51.5. “The economic fundamentals are reasonably strong but are being stymied by the elevated uncertainty.”

Estimates of the 79 economists in the Bloomberg survey ranged from 51.5 to 55. The group’s index of industries that account for about 90 percent of the economy averaged 56.1 in the five years to December 2007, when the last recession began.

Stocks Higher

Stocks maintained gains after the report as Germany and France pushed for a new European Union treaty to fight the debt crisis. The Standard & Poor’s 500 Index climbed 1.7 percent to 1,264.98 at 10:53 a.m. in New York.

Orders placed with U.S. factories fell in October for a second month, the Commerce Department said today. Bookings dropped 0.4 percent after a revised 0.1 percent decrease that was previously estimated as a gain.

The survey’s employment gauge dropped to 48.9 from 53.3, the biggest decrease since March 2009, today’s report showed. Among the industries reporting a reduction in employment were real estate, finance and public administration. Some 15 percent said headcount was expanding in November compared with 16 percent in the previous month.

The group’s measure of new orders increased to 53 from 52.4. A measure of business activity improved to 56.2 from 53.8. The index of prices paid increased to 62.5 from 57.1.

The group’s measure of inventories rose to 52.5 from 45.5.

Slower Europe

A slowing economy in Europe remains a risk for American companies. European services and manufacturing output contracted more in November than initially estimated.

A euro-area composite index based on a survey of purchasing managers in both industries rose to 47 from 46.5 in October, London-based Markit Economics said Monday. That’s below an initial estimate of 47.2 on Nov. 23 and the third monthly reading below 50, indicating contraction.

Companies may struggle to shore up their sales growth as global economies weaken. China’s official manufacturing PMI released last week fell to 49 in November from 50.4 in the previous month, the first contraction since February 2009. U.K. manufacturing output also shrank last month.

The financial crisis in the euro zone will weigh on the U.S. economy through early 2012, Jan Hatzius, chief economist for Goldman Sachs Group Inc., said on a conference call last week. The U.S. economy will expand at a 1 percent annual pace during the first half of 2012, he said. The euro area will contract 0.8 percent during 2012, he said.

Jobless Rate

A report from the Labor Department last week showed the unemployment rate fell to 8.6 percent last month, the lowest since March 2009, from 9 percent. Payrolls climbed by 120,000 after a revised 100,000 increase in October.

Monday's report that showed a slowdown in services hiring is at odds with last week’s jobs data.

“The drop in the employment component of the survey does not mesh with other employment metrics such as payrolls and claims” for jobless benefits, Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York, said in an email to clients.

Employment at service-providers increased 126,000, including a 50,000 gain in retail trade at companies hired for the holiday shopping season, the Labor Department’s data showed. The number of temporary workers rose by 22,300.

Transportation companies are joining retailers such as Kohl’s Inc. and Macy’s Inc in boosting holiday hiring.

UPS Hiring

United Parcel Service Inc. said Nov. 7 that it was considering hiring 55,000 holiday workers this year, a 10 percent increase from 2010, to help with shipping gains bolstered by online shopping.

U.S. consumers poured into the malls and took to the Web during Thanksgiving weekend, spending a record $52.4 billion at a pace that may be hard to sustain as the holiday shopping season gets under way, the National Retail Federation said, citing a survey from BIGresearch.

Coach Inc., the largest U.S. luxury handbag maker, expects an “excellent holiday season,” partly due to shoppers’ “strong interest” in accessories for self-purchase, CEO Lew Frankfort said on a conference call last week.

The Federal Reserve last week said the U.S. economy expanded at a “slow to moderate” pace in 11 of its 12 districts in October and the first half of November, led by gains in manufacturing and consumer spending. “Hiring was generally subdued” and residential real estate “generally remained sluggish,” the Fed said. “Consumer spending increased modestly, on balance.”

Get the most up-to-date data on the Rhode Island and southern Massachusetts business community from the PBN List Center. Download and purchase PBN Lists as well as the complete Book of Lists in Excel format.